Airline mergers mean fewer, costlier flights

If airfares across the U.S. don't feel cheap now, just wait until American Airlines' merger with US Airways (LCC) goes through.

Matthew Iglesias at Slate makes the argument that not only have domestic airfares remained eminently affordable until just recently, but they're also still better than they would have been had the airlines not been deregulated in the late 1970s. Kiss those cheap airfares goodbye, though, as the number of flights airlines make available and the number of airlines resisting fare hikes dwindles with each merger.

Common thinking is that domestic airlines have been losing money hand over fist since the September 11 terrorist attacks. To a degree, that's true. Since 2001, airlines have reported losses in six of the last 11 years according to the Department of Transportation's Bureau of Transportation Statistics. However, the last time the airlines reported losses was in 2008, when they lost nearly $3.6 billion combined.

What could have happened after that point to not only stop the bleeding but give the airlines more than $6 billion in profits each year since 2010 and help them eclipse their pre-9/11 take of $5.3 billion in 2000? It had just a little something do with Delta (DAL) and Northwest merging in 2008 and 2009, Southwest Airlines (LUV) acquiring AirTran in 2010 and 2011 and United (UAL) and Continental merging during that same span.

The number of domestic flights has fallen from 9.8 million just before the mergers in 2007 to 8.6 million in 2011. The final 2012 numbers aren't in, but they were already trending lower as of October. Plus, the remaining flights were increasingly packed as planes went from an average of 79.8% of capacity in 2008 to 83.6% last year.

As Iglesias notes, a stated goal of the American/US Airways merger is to further decrease capacity and target overlapping routes to Dallas-Fort Worth, Philadelphia, Tallahassee, Charlotte and other smaller markets that both airlines serve. More important, merging two airlines takes a voice of dissent out of the mix whenever a fare increase comes up.

Rick Seaney at FareCompare tracks such increases and notes that of the 15 airfare hikes that were attempted last year, only seven remained in place. Airlines approach fare hikes the way kids approach cool new toys at recess: If enough of them are into it, everybody will have one by the end of the week. All it takes is one airline reverting to normal fares to kill a fare hike, so reducing the field.

As a result, average fares that never eclipsed $320 between the end of 1995 and 2006 jumped to $345 by the end of 2008 and climbed to $368 at the close of 2011. Last year, average fares peaked a $385 in spring and early summer.

Once the American/US Airways merger is complete, four airlines will control 70% of all domestic air travel. While Southwest is among them, don't expect the discount carrier to help keep things cheap. Four of the seven fare hikes that went through last year came courtesy of Southwest and its absent baggage fees.

The motivation to keep flights cheap and comfortable is vanishing, but cramped passengers might take some comfort knowing their unpleasant cattle car trip is the best option for carriers looking to keep profits aloft.

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